- IBM shares fell 25% after disappointing Q2 results, the worst drop in 58 years
- Q2 revenue rose 1% to $17.2 billion, with infrastructure revenue down 7%
- Clients rushed to buy servers and memory ahead of price hikes, shifting spending
IBM Share Crash: The shares of IBM (International Business Machines) plunged 25 per cent on Tuesday after the US tech giant released disappointing preliminary second-quarter results. This was the worst stock price crash company in the last 58 years, according to a Bloomberg report.
IBM lost between $67 billion and $70 billion in market capitalisation in a single day during its historic stock crash. The legacy company, founded in 1911, said its revenue for the three months ending in June rose just one per cent to $17.2 billion.
"We faltered... and did not adapt and move quickly enough," IBM CEO Arvind Krishna said in a letter to investors. Notably, IBM's infrastructure business -- which includes its flagship mainframe line -- saw revenue fall seven percent. Software revenue grew five per cent but still came in below expectations.
IBM Share Crash: Supply Shortages Across Industry
A global rush by tech companies to build out artificial intelligence infrastructure has sent demand for servers, memory chips and storage soaring, driving up prices and creating supply shortages across the industry.
IBM said that toward the end of June, many of its big corporate customers rushed to buy up hardware to get ahead of expected price increases.
That shopping spree pulled spending away from IBM's higher-margin mainframe computers, the powerful machines used by banks and large corporations to process millions of transactions, and related software.
"In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases... While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritisation," CEO Krishna said in a letter to investors.
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IBM Share Crash: Cybersecurity Concerns
According to the New York-headquartered tech giant, cybersecurity concerns across the tech industry also distracted clients during the quarter. Krishna also said businesses were prioritising cybersecurity spending as AI made cyberattacks more sophisticated.
These concerns were brought on by the release of Anthropic's Mythos AI model, which has raised alarm bells for its capabilities to find weaknesses in computer networks that can be taken advantage of by hackers.
In response, companies have worked to build up their cyber defences instead of spending on previously planned projects.
This news sent the share price of cybersecurity firms skyrocketing: CrowdStrike rose 12 percent while Okta and Netskope surged about 11 percent each.
IBM Share Crash: Future Of SaaS Firms In Question
The crash in IBM's share price will increase talk of the consequences of the AI revolution on traditional software companies -- known as Software as a Service, or SaaS firms -- of which IBM is an important member alongside companies like Salesforce, Adobe and Intuit.
Shares in those companies were trading lower on Tuesday after the IBM warning. Earlier this year, Wall Street went into a brief frenzy, dubbed the "SaaS-pocalypse," after analysts predicted that the sector was doomed due to the ability of AI models to provide everyday users the same capabilities.
However, on the positive side, IBM's Red Hat unit, which sells open-source software, posted 11 per cent revenue growth. The company's server and storage business outside of mainframes surged 37 per cent as clients snapped up that equipment.
IBM also announced Lightwell, a $5 billion initiative to fix vulnerabilities in open-source software, with backing from major banks including Bank of America, JPMorganChase and Goldman Sachs.
